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Option Brief: AOL, Inc. (NYSE:AOL) options volume is going through the roof today, especially on the call side, where nearly 8,500 contracts are on the tape -- 13 times the expected intraday amount. Most active by a mile is the Web services firm's out-of-the-money May 50 call, which has seen almost 5,300 contracts exchanged.
Volume outstrips open interest at the strike, implied volatility is rising, and 91% of the calls -- including a 4,700-contract lot -- traded at or near the ask price, all of which suggest buy-to-open activity. By purchasing the AOL calls to open, today's traders are hoping the shares will topple the 50 strike by options expiration on Friday, May 16. Alternatively, it's possible they may be short sellers hedging against a rally of that magnitude, as short interest on the stock increased 18% during the last two reporting periods, and now comprises 7.2% of the equity's available float. No matter their motives, the most these individuals have risked is the initial premium paid for the calls.
One event that may be factoring into these bets is AOL's first-quarter earnings release, which is tentatively scheduled for the week of May 5. Historically, the firm has matched or exceeded analysts' bottom-line estimates in each of the past eight quarters, resulting in an average one-week post-earnings gain of 6.2%.
Meanwhile, AOL is flying up the charts this morning, up 7.3% to wink at $45.33. What's more, the shares gained 5.7% last week after bouncing off support from their ascending 40-week moving average. Should this near-term rally continue, a potential short-squeeze situation could add fuel to AOL, Inc.'s (NYSE:AOL) fire.